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HMRC internal manual

VAT Charities

Business and non-business: Charitable activities: Consideration or donation?

Some services are provided by charities free of charge; regardless of this the recipient of the service may choose to make a donation to the charity. Providing that the donation:

  • is freely given (i.e. it is not required in order to obtain the service), and
  • does not entitle the donor to any other benefit, apart from, for example, a basic acknowledgement of the donation such as a thank you note, a lapel flag or poppy,

it will be outside the scope of VAT. An illustration of the distinction between a donation and consideration can be found in the following example.

Example: A charity exists to provide relief for poor or distressed authors and to advance public education through improving public literary taste. Part of the charities income stems from the receipt of royalties that have been bequeathed to it in the wills of deceased authors. No rights have been transferred to the charity - these are held by the executors of the estates of the deceased authors and used by them to make supplies to third parties. Any income received is then passed on to the charity in accordance with the wishes of the deceased authors.

So, is this income a consideration for a taxable supply (as royalty income) or a donation to the charity?

Although it is receiving the benefit of the royalty income the charity is not making any supplies in respect of the copyright of the deceased authors as it doesn’t own the copyrights. Accordingly the income relating to the royalties is a donation to the charity by the executors.

Any exploitation of copyright by the charity would of course be a business activity and the income generated would be business income.